Globalization Ppt MB A

8/2/2019 Globalization Ppt MB A

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INTERNATIONAL

FINANCIAL

MANAGEMENT

EUN / RESNICKSecond Edition

1Globalization & theMultinational Firm

Chapter Objectives:

Understand why it is important to study international finance.

Distinguish international finance from domestic finance.


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Chapter One Outline1-1

Whats Special about International Finance?

Goals for International Financial Management

Globalization of the World Economy Multinational Corporations

Organization of the Text

Summary


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Whats Special about

International Finance?1-2

Foreign Exchange Risk

Political Risk

Market Imperfections

Expanded Opportunity Set


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Whats Special about


Foreign Exchange Risk

The risk that foreign currency profits mayevaporate in dollar terms due to unanticipated

unfavorable exchange rate movements. Political Risk

Sovereign governments have the right to regulatethe movement of goods, capital, and people

across their borders. These laws sometimeschange in unexpected ways.


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Whats Special about


Market Imperfections

Legal restrictions on movement of goods,people, and money

Transactions costs

Shipping costs

Tax arbitrage


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Whats Special about


Expanded Opportunity Set

It doesnt make sense to play in only one

corner of the sandbox.

True for corporations as well as individualinvestors.


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Goals for International FinancialManagement

1-6

The focus of the text is to equip the reader withthe intellectual toolbox of an effective global

managerbut what goal should this effective

global manager be working toward? Maximization of shareholder wealth?

or

Other Goals?


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Maximize Shareholder Wealth1-7

Long accepted as a goal in the Anglo-Saxoncountries, but complications arise.

Who are and where are the shareholders?In what currency should we maximize their

wealth?


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Other Goals1-8

In other countries shareholders are viewed as merelyone among many stakeholders of the firm including:

Employees

Suppliers

Customers

In Japan, managers have typically sought tomaximize the value of the keiretsua family of firms

to which the individual firms belongs.


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Other Goals1-9

No matter what the other goals, they cannot beachieved in the long term if the maximization ofshareholder wealth is not given due

consideration.


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Globalization of the World Economy:Recent Trends

1-10

Emergence of Globalized Financial Markets

Trade Liberalization and Economic Integration

Privatization


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Emergence of GlobalizedFinancial Markets

1-11

Deregulation of Financial Markets

coupled with

Advances in Technology

have greatly reduced information and

transactions costs, which has led to:

Financial Innovations, such as Currency futures and options

Multi-currency bonds

Cross-border stock listings

International mutual funds


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Economic Integration1-12

Over the past 50 years, international tradeincreased about twice as fast as world GDP.

There has been a sea change in the attitudes

of many of the worlds governments who haveabandoned mercantilist views and embracedfree trade as the surest route to prosperity fortheir citizenry.


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Liberalization ofProtectionist Legislation

1-13

The General Agreement on Tariffs and Trade(GATT) a multilateral agreement amongmember countries has reduced many barriers

to trade. The World Trade Organization has the power

to enforce the rules of international trade.

The North American Free Trade Agreement(NAFTA) calls for phasing out impediments totrade between Canada, Mexico and the UnitedStates over a 15-year period.


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Privatization

1-14

The selling off state-run enterprises toinvestors is also known as Denationalization.

Often seen in socialist economies in transition

to market economies. By most estimates this increases the efficiency

of the enterprise.

Often spurs a tremendous increase in cross-border investment.


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Multinational Corporations

1-15

A firm that has incorporated on one countryand has production and sales operations inother countries.

There are about 60,000 MNCs in the world. Many MNCs obtain raw materials from one

nation, financial capital from another, producegoods with labor and capital equipment in athird country and sell their output in variousother national markets.


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Top 10 MNCs

1 General Electric United States

2 Ford Motor Company United States

3 Royal Dutch/Shell GroupNetherlands/ UK

Netherlands/U.K.4 General Motors United States

5 Exxon Corporation United States

6 Toyota Japan

7 IBM United States

8 Volkswagen Group Germany

9 Nestl SA Switzerland

10 Daimler-Benz AG Germany

-


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The Organization of the Text1-17

Macroeconomic

Environment

The Financial

Environment

Management of

the MultinationalFirm

Part I

Chapters 1-5

Part II

Chapters 6-11

Parts III & IV

Chapters 12-20


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End Chapter One1-18

Globalization Ppt MB A

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